1800’s Ricardian theory of trade
-David Ricardo’s comparative advantage theory
-Assumptions :1. A two-country and two-commodity model is applied.
2. Labour is the only factor of production, homogeneous and mobile within a
country but immobile between countries.
3. Technology does not change (no innovation)
4. There is full employment in both countries before and after the trade
5. Perfect competition prevails in all markets
6. Constant returns to scale
7. Free Trade: no restrictions on imports or exports
8. No transport costs
-Comparative advantage : the advantage that one country has over another if they can
producte a product at a lower opportunity cost than another country
-Opportunity cost : value of one product in terms of another e.g. the quantity of food that
must be sacrificed to produce one more unit of clothing
1900’s Factor endownment theory
-Heckscher-Ohlin theory
-Assumptions :1. Two country and two commodity model applies
2. Two factors of production, capital(K) and labour (L) that are mobile across
sectors
3. Perfect competition prevails in all markets
4. Free Trade: no restrictions on imports or exports
5. Constant returns to scale
6. Countries have identical production technologies
7. Consumer tastes are the same across countries, and preferences for
commodities do not vary with a country’s level of income.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through EFT, credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying this summary from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller Studynotes101. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy this summary for R133,00. You're not tied to anything after your purchase.